Since the beginning of May, Dalian corn futures have exhibited a pattern of selling on expectations and buying on actual conditions, with market attention now turning to potential basis convergence in the later period.

In May, Dalian corn futures were pressured by expectations of supply-side shocks, causing prices to fall below the key support level near 2300, which marked the starting point of the previous rally. A series of factors contributed to this weakness: the release of over-aged and aged-out rice reserves, expectations of a bumper wheat harvest, the impact of sprouted wheat, the arrival of large volumes of imported substitutes at ports, and the auction of imported corn. These supply-side pressures led to a significant decline in futures prices, while spot prices remained relatively firm, resulting in a passive strengthening of the basis.

Entering the current month, the market has shifted to a "sell the expectation, buy the reality" dynamic. This change followed developments such as the actual release of over-aged rice falling short of expectations, the successful auction of imported corn at floor prices with a high acceptance rate, and indications that the bottom for sprouted wheat prices has been established after a frenzied buying period. Looking ahead, with fewer import shipments scheduled for July through September, coupled with critically low corn inventories at domestic consumption area ports and a recent rebound in weekly offtake at southern ports, there is an expectation that the remaining old-crop contracts, specifically the July and September contracts, still possess upside potential to rally and converge the basis.

Examining the basis in the key production regions of Heilongjiang and Jilin, it currently stands at its highest level in nearly three years, with a trend of further strengthening anticipated. Similarly, the basis at southern ports is also at a multi-year high and is expected to follow a seasonal strengthening pattern. From the perspective of delivery, the profitability for delivering from the Heilongjiang and Jilin regions is at its worst level in nearly four years. Conversely, from the perspective of taking delivery, the profitability for accepting delivery at the Yangtze River estuary and Guangdong ports is relatively high compared to recent years. Additionally, given the significant increase in ocean freight rates since March, if rates return to more normal levels in July and August after taking delivery, the potential returns from accepting warehouse receipts are expected to be even greater.

As of the close on June 9th, the open interest for the July contract remains substantial at 870,000 lots. With 14 trading days remaining before the delivery month, this implies an average daily reduction in open interest of nearly 60,000 lots. Notably, the volume of warehouse receipts has declined rapidly over the last three trading sessions. In the short term, market focus will be on the reduction of near-month open interest and the fluctuations in the July-September spread during the rollover period.